UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-14645
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DIVERSIFIED HISTORIC INVESTORS II
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2361261
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1521 LOCUST STREET, PHILADELPHIA, PA 19102
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215)557-9800
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Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act: 20,593.3 Units
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UNITS OF LIMITED PARTNERSHIP INTEREST
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of Units held by non-affiliates of the
Registrant: Not Applicable*
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* Securities not quoted in any trading market to Registrant's
knowledge.
PART I
Item 1. Business
a. General Development of Business
Diversified Historic Investors II ("Registrant") is a
limited partnership formed in 1984 under Pennsylvania law. As of
December 31, 2000, Registrant had outstanding 20,593.3 units of
limited partnership interest (the "Units").
Registrant is presently in its operating stage. It
originally owned four properties or interests therein. Its
interest in one property has been lost through foreclosure. It
currently owns three properties or interests therein. See Item
2. Properties, for a description thereof. For a discussion of
the operations of the Registrant, see Part II, Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
b. Financial Information about Industry Segments
The Registrant operates in one industry segment.
c. Narrative Description of Business
Registrant is in the business of operating, holding,
selling, exchanging and otherwise dealing in and with real
properties containing improvements which are "Certified Historic
Structures," as such term is defined in the Internal Revenue Code
(the "Code"), or which are eligible for designation as such, for
use as apartments, offices, hotels and commercial spaces, or any
combination thereof, or low income housing eligible for the tax
credit provided by Section 42 of the Code, and such other uses as
the Registrant's general partner may deem appropriate.
Since the Registrant's inception, all the properties
acquired either by the Registrant, or the subsidiary partnerships
in which it has an interest, have been rehabilitated and
certified as historic structures and have received the related
investment tax credit. Two of the properties are held for rental
operations and one is operated as a hotel. As of the date hereof
it is anticipated that all the properties will continue to be
held for these purposes. At such time as real property values
begin to increase, the Registrant will re-evaluate its investment
strategy regarding the properties.
As of December 31, 2000, Registrant owned three
properties (or interests therein), one each located in
Pennsylvania, Maryland, and Georgia. In total, the three
properties contain 269 apartment units, 73,366 square feet ("sf")
of commercial/retail space and 44 hotel rooms. As of December
31, 2000, 253 of the apartment units were under lease at monthly
rental rates ranging from $780 to $2,400 and approximately 65,744
sf of commercial space was under lease at annual rental rates
ranging from $5.33 per sf to $30.00 per sf. Throughout 2000, all
of the hotel rooms were available for use. During 2000, the
hotel maintained an average nightly room rate of $124.23 and
average occupancy of 61%. Rental of the apartments and
commercial space is not expected to be seasonal. However, the
hotel does experience seasonal changes, with the busiest months
being March, April and October and the slowest months being
January and December. Washington Square was foreclosed on March
22, 2001 by its mortgagee by recordation of a deed in lieu of
foreclosure. For further discussion of the properties, see Item
2. Properties.
The Registrant is affected by and subject to the
general competitive conditions of the residential and commercial
real estate industry. As a result of the overbuilding that
occurred in the 1980's, the competition in the local markets
where the Registrant's properties are located is generally
strong. As a result, the Registrant is forced to keep its rent
levels competitively low in order to maintain moderate to high
occupancy levels. In the Historic District of the Inner Harbor in
Baltimore, the competition for tenants remains stiff and several
similar buildings exist. The apartment market remains stable and
new construction remains virtually nonexistent although the
availability of favorable home financing has placed pressure on
the rental tenant base.
The hotel is located in Savannah, Georgia and is one
of several historic buildings which have been converted into
hotels and inns. The hotel relies heavily on the tourist trade
which is on the upswing in Savannah. The hotel is generally
considered to be a market leader, due to its location on River
Street, the main shopping and entertainment area on the river,
and the fact that it provides a full array of hotel amenities,
not just a bed and breakfast atmosphere.
Registrant has no employees. Registrant's
activities are overseen by Brandywine Construction & Management,
Inc., ("BCMI"), a real estate management firm.
d. Financial Information About Foreign and
Domestic Operations and Export Sales.
See Item 8. Financial Statements and Supplementary
Data.
Item 2. Properties
As of the date hereof, Registrant owned three
properties, or interests therein. A summary description of each
property held at December 31, 2000 is given below.
a. Tindeco Wharf - consists of 240 apartment units and
approximately 41,307 sf of commercial space located at 2809
Boston Street in the Fell's Point-Canton Historic District of
Baltimore, Maryland. In October 1985, Registrant was admitted
with an 85% interest to Tindeco Wharf Partnership ("TWP"), a
Maryland general partnership, for a cash contribution of
$7,271,300. Registrant subsequently increased its ownership
interest in TWP to 90% by purchasing an additional 5% interest
for $262,500. TWP acquired and rehabilitated this Property at an
approximate cost of $28,600,000 ($66 per sf), funded by the
equity contribution and mortgage financing of $21,869,600. The
mortgage financing is comprised of mortgage revenue bonds and a
Urban Development Action Grant ("UDAG") loan. Other financing
includes a loan from the developer of $2,300,000 and operating
deficit loans from both the property manager and D, LTD in the
original principal amounts of $300,000 and $200,000 respectively.
The operating deficit loans were repaid during 1999. The excess
of equity and mortgage financing over the acquisition and
rehabilitation costs was utilized to provide various escrow
deposits and required reserves.
The City of Baltimore issued mortgage revenue
refunding bonds, Series 1992, (GNMA collateralized) for the
purpose of providing permanent financing for TWP. The bonds are
backed by a HUD-insured mortgage ("the note"). The note, held by
GNMA as lender, bears interest at a rate of 9.75% per annum and
is secured by a first mortgage on the property. Principal and
interest is payable in monthly installments of $143,801. The
note matures December 2028. The refunding issue bears interest
at an average rate of 6.62%. The difference in the interest on
the mortgage and the refunding bonds is returned to TWP for
operations.
The principal balance of the bonds was $16,531,452
at December 31, 2000. The bonds are comprised of both serial and
term bonds. The serial bonds bear interest at rates ranging from
4.6% to 6.1% and mature semi-annually from June 1999 through
December 2006. The term bonds bear interest at rates ranging
from 6.5% to 6.7% and mature in 2012, 2024, and 2028. The UDAG
loan (which has a balance of $4,953,471 at December 31, 2000 bore
interest at 4% through August 1994 and at 7 1/2% thereafter.
This loan is due in 2004. The developer's loan (principal
balance of $2,300,000 at December 31, 2000) bears interest at 12%
and is payable on a pro-rata basis out of cash flow from the
property. The developer's loan is due in 2005, or upon earlier
sale or refinancing of the property.
The property is managed by BCMI. As of December 31,
2000, 227 apartment units (94%) and 38,607 sf of commercial space
(92%) were under lease. Monthly rental rates range from $780 to
$2,400 for apartments and annual rental rates range from $5.33 to
$21.57 per sf for commercial space. All residential leases are
renewable, one-year leases. The occupancy for the residential
units for the previous four years was 96% for 1999, 98% for 1998,
98% for 1997, and 95% for 1996. The occupancy for the commercial
space for the previous four years has been 98% for 1999, 97% for
1998, 100% for 1997, and 100% for 1996. The range for annual
rents has been $5.33 to $20.55 per sf for 1999, $5.33 to $25.34
per sf for 1998, $5.33 to $19.47 per sf for 1997, and $5.33 to
$19.47 per sf for 1996. There are four tenants who each occupy
ten percent or more of the commercial rentable square footage.
They operate principally as a medical office, a restaurant, a
fitness club and a travel agency.
The following is a table showing commercial lease
expirations at Tindeco Wharf for the next five years.
Total annual
Number of Total sf of rental covered % of gross
Years leases expiring by expiring annual rental
expiring leases leases from property
2001 3 8,563 $154,772 4%
2002 0 0 0 0%
2003 1 5,600 120,814 3%
2004 1 1,944 38,880 1%
2005 1 4,500 24,000 1%
Thereafter 1 17,050 194,225 5%
For tax purposes, this property has a federal tax
basis of $30,134,420 and is depreciated using the straight-line
method with a useful life of 27.5 years. The annual real estate
taxes are $441,978 which is based on an assessed value of
$19,508,200, taxed at a rate of $2.26 per $100. It is the
opinion of the management of the Registrant that the property is
adequately covered by insurance.
b. River Street Inn/Factor's Walk - consists of 44
hotel rooms and 22,559 sf of commercial space located at 115 E.
River Street in Savannah, Georgia. In August 1985, Registrant
was admitted with a 99% interest in Factor's Walk Partners
("FWP") a Georgia general partnership, for $3,600,409. FWP
acquired and rehabilitated the property for $8,900,409 ($127 per
sf), including financing through an issuance by a governmental
agency of tax-exempt bonds in the principal amount of $5,800,000.
The excess of equity and mortgage financing over the acquisition
and rehabilitation costs was utilized to provide working capital
reserves of $500,000. The bonds bore interest at TENR (a rate
based on yields of high quality, short-term tax exempt
obligations) plus 0.5% until December 30, 1996 and were
guaranteed by a private corporation. On December 30, 1996, both
the bonds and the guarantee were sold. The new holder of the
bonds exercised its right to convert the interest rate from the
variable rate to 14% due to the credit rating of the new
guarantor. The principal balance of the bonds at December 31,
2000 was $5,970,383 and is due on December 31, 2015.
The property is managed by BCMI. As of December 31,
2000, 16,652 sf of the commercial space (74%) was under lease at
annual rental rates ranging from $9.63 to $30.00 per sf. The
property also maintains 44 operating hotel rooms at an average
nightly rate of $124.23; average occupancy for 2000 was
approximately 61%. The hotel occupancy rate for the previous
four years was 66% for 1999, 75% for 1998, 74% for 1997, and 77%
for 1996. The average room rates were $126.45 for 1999, $128.06
for 1998, $106.06 for 1997, and $100.92 for 1996. The occupancy
for the commercial space was 74% for 1999, 74% for 1998, 96% for
1997, and 97% for 1996. The range for annual rents was $7.89 to
$26.83 per sf for 1999, $7.11 to $26.26 per sf for 1998, $7.11 to
$25.82 per sf for 1997, and $5.53 to $25.27 per sf for 1996.
There are two tenants who each occupy ten percent or more of the
rentable square footage. They operate principally as a
restaurant and a retail store.
The following is a table showing commercial lease
expirations at Factor's Walk for the next five years.
Total annual
Number of Total sf of rental covered % of gross
Years leases expiring by expiring annual rental
expiring leases leases from property
2001 2 2,026 $41,541 16%
2002 2 400 8,700 3%
2003 3 2,640 39,560 11%
2004 0 0 0 0%
2005 4 3,856 61,984 23%
Thereafter 2 6,620 93,620 35%
For tax purposes, this property has a federal tax
basis of $10,724,168 and is depreciated using the straight-line
method with a useful life of 27.5 years. The annual real estate
taxes are $59,923 which is based on an assessed value of
$1,304,800, taxed at a rate of $4.409 per $100. It is the
opinion of the management of the Registrant that the property is
adequately covered by insurance.
c. Washington Square - consists of 9,500 sf of
commercial space and 29 residential units located at 320 N.
Church Street, West Chester, Pennsylvania. In October 1985,
Registrant acquired and rehabilitated the Property for $2,750,000
($79 per sf; such amount is exclusive of $170,883 of capitalized
fees incurred which were funded by Registrant's equity
contributions), including mortgage financing of $1,600,000. The
mortgage loan (principal balance of $1,083,896 at December 31,
2000) bears interest at the Federal Reserve discount rate plus 2%
with a minimum of 7% and a maximum of 15% (7% at December 31,
2000) and is due in October 2005. The property is also encumbered
by a judgment pursuant to a note with an amount outstanding of
$1,111,079 as of December 31, 2000.
The property is managed by BCMI. As of December 31,
2000, 9,390 sf of commercial space (99%) was rented at annual
rates ranging from $8.00 per sf to $16.00 per sf. At December
31, 2000, 29 of the residential units (100%) were under lease at
monthly rental rates ranging from $670 to $1,275. All
residential leases are renewable, one-year leases. The occupancy
for the residential units for the previous four years was 95% for
1999, 97% for 1998, 86% for 1997, and 100% for 1996. The monthly
rental range has been approximately the same since 1996. The
occupancy for the commercial space for the previous four years
was 88% for 1999, 87% for 1998, 87% for 1997, and 86% for 1996.
The range for annual rents has been $8.00 to $14.00 per sf for
1999, $7.56 to $12.60 per sf for 1998, $8.00 to $13.00 per sf for
1997, and $6.00 to $13.00 per sf for 1996.
The following is a table showing
commercial lease expirations at Washington Square for the next
five years.
Total annual
Number of Total sf of rental covered % of gross
Years leases expiring by expiring annual rental
expiring leases leases from property
2001 2 5,198 $48,772 43%
2002 0 0 0 0%
2003 1 1,094 13,302 12%
2004 2 3,098 45,768 40%
2005 0 0 0 0%
Thereafter 0 0 0 0%
For tax purposes, this property has a federal tax
basis of $2,965,181 and is depreciated using the straight-line
method with a useful life of 27.5 years. The annual real estate
taxes are $30,167 which is based on an assessed value of
$1,644,640 taxed at a rate of $1.834 per $100. It is the opinion
of the management of the Registrant that the property is
adequately covered by insurance.
The property was foreclosed on March 22, 2001 by the
holder of the mortgage and the judgment.
Item 3. Legal Proceedings
a. For a description of legal proceedings involving
Registrant's properties, see Part II, Item 7. River Street
Inn/Factor's Walk Partners.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fiscal years covered
by this report to a vote of security holders.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
a. There is no established public trading market for
the Units. Registrant does not anticipate any such market will
develop. Trading in the Units occurs solely through private
transactions. The Registrant is not aware of the prices at which
trades occur. Registrant's records indicate that 275 Units of
record were sold or exchanged in 2000.
b. As of December 31, 2000, there are 2,569 record
holders of Units.
c. Registrant did not declare any cash dividends in
2000 or 1999.
Item 6. Selected Financial Data
The following selected financial data are for the five
years ended December 31, 2000. The data should be read in
conjunction with the consolidated financial statements included
elsewhere herein. This data is not covered by the independent
auditors' report.
2000 1999 1998 1997 1996
Rental income $ 5,462,332 $ 5,015,476 $ 4,623,527 $ 4,463,462 $ 4,303,963
Hotel
revenues 1,305,660 1,384,057 1,582,824 1,282,525 1,282,662
Interest
income 45,742 23,336 35,575 29,636 18,654
Net loss (2,474,642) (4,292,936) (2,980,282) (3,457,494) (2,262,184)
Net loss per
unit (118.97) (206.38) (143.27) (166.22) (108.75)
Total assets
(net of
depreciation
and
amortization) 25,074,714 25,880,800 26,503,288 27,143,753 28,633,916
Debt
obligations 33,792,649 33,306,221 32,808,014 32,712,165 33,087,679
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(1) Liquidity
At December 31, 2000, Registrant had cash of
$23,681. Cash generated from operations is used primarily to
fund operating expenses and debt service. If cash flow proves to
be insufficient, the Registrant will attempt to negotiate loan
modifications with the various lenders in order to remain current
on all obligations and to defer administrative costs. The
Registrant is not aware of any additional sources of liquidity.
As of December 31, 2000, Registrant had restricted
cash of $1,767,238 consisting primarily of funds held as security
deposits, replacement reserves and escrows for taxes. As a
consequence of these restrictions as to use, Registrant does not
deem these funds to be a source of liquidity.
In recent years the Registrant has realized
significant losses, including the foreclosure of two properties,
due to the properties' inability to generate sufficient cash flow
to pay their operating expenses and debt service. At the present
time, the two remaining properties are able to pay their
operating expenses and debt service but it is unlikely that any
cash will be available to the Registrant to pay its general and
administrative expenses. In the legal proceeding involving the
Morrison Clark Inn (see "Results of Operations" below in this
Item 7), a property formerly owned by the Registrant, if Capital
Bank executes upon its $1,800,000 judgment with respect to the
Registrant, it is expected to have significant adverse impact on
the Registrant since there is insufficient available cash to pay
the judgment. Any such execution could result in a forced sale
of the Registrant's remaining properties.
It is the Registrant's intention to continue to hold
the properties until they can no longer meet their debt service
requirements and the properties are foreclosed, or the market
value of the properties increases to a point where they can be
sold at a price which is sufficient to repay the underlying
indebtedness (principal plus accrued interest).
(2) Capital Resources
Any capital expenditures needed are generally
replacement items and are funded out of cash from operations or
replacement reserves, if any. The Registrant is not aware of any
factors which would cause historical capital expenditures levels
not to be indicative of capital requirements in the future and,
accordingly, does not believe that it will have to commit
material resources to capital investment for the foreseeable
future.
(3) Results of Operations
During 2000, Registrant incurred a net loss of
$2,474,642 ($118.97 per limited partnership unit), compared to a
net loss of $4,292,936 ($206.38 per limited partnership unit), in
1999 and a net loss of $2,980,282 ($143.27 per limited
partnership unit), in 1998.
Rental and hotel income was $6,767,992 in 2000,
6,399,533 in 1999, and $6,206,351 in 1998. The increase from 1999
to 2000 is due to an increase in rental income at Tindeco Wharf,
the River Street Inn and Washington Square, partially offset by a
decrease in hotel income at the River Street Inn. The increase in
rental income at Tindeco Wharf is due to an increase in average
rental rates from $810 to $1,815 in 1999 to $780 to $2,400 in
2000. The increase at the River Street Inn is due to an increase
in commercial rental rates from $7.89 to $26.83 in 1999 to $9.63
to $30.00 in 2000. The increase in rental income at Washington
Square is due to an increase in average occupancy (95% to 100%).
The decrease in hotel income at the River Street Inn is due to a
decrease in average occupancy (66% to 61%) and a decrease in
average room rates from $126.45 in 1999 to $124.23 in 2000. The
increase from 1998 to 1999 is due to an increase in residential
rental income at Tindeco Wharf, offset by a decrease at
Washington Square. The increase in rental income at Tindeco
Wharf is due to an increase in average rental rates. Rental
income decreased at Washington Square due to a decrease in
average occupancy (97% to 95%).
Interest income was $45,742 in 2000, $23,336 in
1999, and $35,575 in 1998. The increase from 1999 to 2000 is due
to an increase in the interest bearing restricted cash balance at
Tindeco Wharf. The decrease from 1998 to 1999 resulted from a
decrease in the restricted cash balance at Tindeco Wharf.
Rental operations expense was $2,102,470 in 2000,
$2,055,706 in 1999 and $1,850,883 in 1998. The increase in rental
operations expenses from 1999 to 2000 is due to an increase in
management fees at Washington Square and Tindeco Wharf, and
payroll expense at Tindeco Wharf, partially offset by a decrease
in maintenance expense at both Washington Square and Tindeco
Wharf. The increase in management fees at Washington Square is
due to a change in management company during 2000. The increase
in management fees at Tindeco Wharf is due to an increase in
rental income and the increase in payroll expense is due to an
increase in marketing and leasing, and maintenance payroll. The
decrease in maintenance expense at Washington Square due to a
decrease in apartment preparation expense caused by a lower
turnover of apartment units in 2000 as compared to 1999. The
decrease in maintenance expense at Tindeco Wharf is due to
completion of planned repairs at the property. The increase in
rental operations expenses from 1998 to 1999 is due to an
increase in maintenance expenses at Washington Square and Tindeco
Wharf. Maintenance expense increased at Washington Square due to
an increase in apartment preparation expense caused by a higher
turnover of apartment units. The increase in maintenance expense
at Tindeco Wharf is due to planned repairs at the property
including roof repairs, electrical repairs, plumbing repairs, and
painting.
Hotel operations expense was $1,122,156 in 2000,
$1,215,631 in 1999, and $1,423,018 in 1998. The decrease from
1999 to 2000 is due to a decrease in food and beverage expense
and maintenance expense due to a decrease in occupancy (66% to
61%). The decrease from 1998 to 1999 is due to an decrease in
food and maintenance expense as a result of a decrease in
occupancy throughout the year.
Partnership administration fees incurred in the
amount of $1,333,786 during 1999 is due to the termination of the
management agreement with Signature Management Services at
Tindeco Wharf.
General and administrative expense was $0 in 2000
and $198,000 in 1999 and 1998. The Registrant ceased accruing
partnership administration fees in 2000. The cash flow and debt
of the Registrant make it unlikely that these fees will be paid.
Interest expense was $4,240,944 in 2000, $4,122,243
in 1999, and $4,007,500 in 1998. The increase from 1999 to 2000
is due to an increase in interest expense at the River Street Inn
and Tindeco Wharf. The increase in interest expense at the River
Street Inn is due to an increase in the principal balance due to
advances made by the first mortgage holder to fund building
renovations. Interest expense increased at Tindeco Wharf due to
the accrual of interest on a higher average balance on the second
mortgage. The balance increased due to the capitalization of
interest accrued but not paid on certain loans, as described
below.
Depreciation and amortization was $1,822,805 in
2000, $1,790,439 in 1999, and $1,742,807 in 1998. The increase
from 1999 to 2000 and from 1998 to 1999 is due to an increase at
the River Street Inn and Tindeco Wharf due to the depreciation of
fixed asset additions.
In 2000, a loss of approximately $2,131,000 was
incurred at the Registrant's three properties compared to a loss
of approximately $3,768,000 in 1999 and a loss of approximately
$2,456,000 in 1998. A discussion of property
operations/activities follows:
In 2000, Tindeco Wharf sustained a loss of
$1,203,000 including $1,235,000 of depreciation and amortization
expense compared to a loss of $2,824,000 including $1,235,000 of
depreciation and amortization expense and $418,000 of deferred
interest (reflecting interest accrued but not paid on the
developer's and operating deficit loans) in 1999 and a loss of
$1,559,000, including $1,201,000 of depreciation and amortization
expense and $1,094,000 of deferred interest in 1998. The
decrease in the loss from 1999 to 2000 is the result of an
increase in residential rental income combined with a decrease in
maintenance expense and the one time partnership administration
fee in 1999 partially offset by an increase in interest expense
and management fees. Residential rental income increased due to
an increase the average rental rates and interest income
increased due to an increase in the balance of the interest
bearing restricted cash. Maintenance expense decreased due to the
completion of planned repairs at the property. Interest expense
increased due to a increase in the principal balance upon which
interest is calculated. Management fees increased due to an
increase in rental income. The increase in the loss from 1998 to
1999 is the result of the partnership administrative fee,
referred to above, and an increase in maintenance, interest and
depreciation expense combined with a decrease in interest income,
partially offset by an increase in rental income. The increase
in maintenance expense is due to planned repairs at the property
including roof, electrical and plumbing repairs and painting.
Interest expense increased due to the accrual of interest on a
higher average balance on the second mortgage. Depreciation
expense increased due to the depreciation of fixed asset
additions. Partnership administrative fees incurred in the
amount of $1,333,786 during 1999 are the result of the
termination of the management agreement with Signature Management
Services. The decrease in interest income is due to the decrease
in the interest bearing restricted cash balance. Rental income
increased due to an increase in average rental rates.
In 2000, the River Street Inn sustained a loss of
$928,000 including $407,000 of depreciation and amortization
expense compared to a loss of $936,000 including $382,000 of
depreciation and amortization expense in 1999 and a loss of
$907,000 including $371,000 of depreciation expense in 1998. The
decrease in the loss from 1999 to 2000 is due to an increase in
commercial rental income combined with a decrease in food and
beverage expense, and maintenance expense, partially offset by a
decrease in hotel income. The increase in commercial rental
income is due to a increase in the annual rental rates from $7.89
to $26.83 in 1999 to $9.63 to $30.00 in 2000. The decrease in
food and beverage expense, and maintenance expense is due to a
decrease in hotel occupancy (66% to 61%). The decrease in hotel
income is due to a decrease in average room occupancy (66% to
61%) and a decrease in average room rates $126.45 in 1999 to
$124.23 in 2000. The increase in the loss from 1998 to 1999 is
due to an decrease in hotel income combined with a increase in
interest and depreciation expense, offset by a decrease in food
and maintenance expense. The decrease hotel income is due to a
decrease in occupancy (75% to 66%). Interest expense increased
due to an increase in principal balance upon which interest is
accrued due to advances made by the first mortgage holder to fund
building repairs. Depreciation expense increased due to the
depreciation of fixed asset additions. The decrease in food and
maintenance expense is a result of a decrease in occupancy
throughout the year.
FWP is involved in one legal proceeding as discussed
below:
J. A. Jones Construction Company ("Jones")
contracted with FWP for the renovation of what was originally a
warehouse into the River Street Inn/Factor's Walk. During
construction, numerous disputes arose between the parties. As a
result of those disputes, Jones abandoned the project prior to
completion and filed suit in the matter of J.A. Jones
Construction Company v. Factor's Walk Partners in the United
States District Court for the Northern District of Georgia. On
January 1, 1994, the court entered a judgment in favor of Jones
and against FWP in the amount of $1,069,017. The judgment
accrued interest at 9.5% and $62,562 of interest was accrued in
both 1994 and 1995. FWP filed an appeal and this appeal was held
in abeyance while FWP and Jones participated in a court sponsored
settlement program. On November 8, 1996, a settlement agreement
was reached whereby a note in the amount of $1,000,000 was
issued. The note calls for 6% interest until September 1, 1997,
with the rate increasing .5% on each August 1 thereafter to a
maximum rate of prime plus 2% (therefore, 8% at December 31,
2000) and is due on October 1, 2011. Interest is due quarterly.
On June 30, 1992, DHP, Inc. assigned to D, LTD a
note receivable, from FWP to the Registrant, which had been
assigned to DHP, Inc. The note was in the stated amount of
$55,951 and bore interest at 10%; the note was due on June 30,
1997. On January 13, 1994 D, LTD obtained a judgment on this
note in the amount of $73,184 in Common Pleas Court for
Philadelphia County, Pennsylvania. The judgement accrues interest
at 15%. On March 31, 2000 the note was sold. Interest accrued
during 2000 was $22,620. The balance of the note at December 31,
2000 was $197,409.
In 2000, Washington Square incurred a loss of $1,000
including $126,000 of depreciation expense compared to a loss of
$8,000 including $122,000 of depreciation expense in 1999 and
income of $10,000 including $117,000 of depreciation expense in
1998. The decrease in the loss from 1999 to 2000 is due to an
increase in rental income due to an increase in average occupancy
(95% to 100%) and an increase in the average rental rates
combined with a decrease in maintenance expense. Maintenance
expense decreased due to a lower turnover of apartment units in
2000 compared to 1999. The loss in 1999 is due to a decrease in
rental income combined with a increase in maintenance expense.
The decrease in rental income is due to a decrease in rental
occupancy rates (97% to 95%). The increase in maintenance
expense is due to an increase in apartment preparation expense
caused by a higher turnover of apartment units. The income in
1998 resulted mainly from an increase in rental income due to an
increase in the average rental rates combined with a decrease in
maintenance expense. Maintenance expense decreased due to a
lower turnover of apartment units in 1998.
On June 30, 1992, DHP, Inc. assigned to D, LTD a
note receivable from the Registrant in the stated amount of
$404,046. The note bore interest at 10% and was due on June 30,
1997. On March 23, 1993 D, LTD obtained a judgment on this note
in the amount of $454,299 in Common Pleas Court for Philadelphia
County, Pennsylvania. The judgment accrues interest at 15%.
Interest accrued during 2000 and 1999 was $163,654 and $155,167,
respectively. Payments on the judgment are to be made from
available cash flow and before any distribution can be made to
the Registrant's limited partners. The balance of the note at
December 31, 2000 is $1,111,079. This note and judgment are
secured by a judgment lien on Washington Square and have been
acquired by the holder of the mortgage on Washington Square.
The seller of Washington Square agreed to lend funds
to the Partnership to cover cash flow deficits for a five-year
period expiring in 1990. The Partnership borrowed $97,008
through December 1988. The loan bears interest at 12%, with
principal and interest payments to be made out of cash flow after
the payment of the cumulative preferred return to the limited
partnership unit holders. Interest accrued during both 2000 and
1999 was $11,641. The balance of the note at December 31, 2000
was $248,340.
Washington Square was foreclosed on March 22, 2001
by the holder of the mortgage and the judgment.
In February 1993, one of the Registrant's
properties, the Morrison-Clark Inn, was foreclosed by the lender.
In November 1993, the lender obtained a judgment in the matter of
Capital Bank, N.A. v. Diversified Historic Investors II in the
amount of $1,800,000. If capital bank executes upon its
$1,800,000 judgement with respect to the registrant, it is
expected to have significant adverse impact on the Registrant
since there is insufficient available cash to pay the judgement.
Any such execution could result in a forced sale of the
registrants remaining properties.
Item7A. Quantitative and Qualitative Disclosures about Market
Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
Registrant is not required to furnish the supplementary
financial information referred to in Item 302 of Regulations S-K.
Independent Auditor's Report
To the Partners of
Diversified Historic Investors II
We have audited the accompanying consolidated balance sheet of
Diversified Historic Investors II (a Pennsylvania limited
partnership) and subsidiaries as of December 31, 2000 and 1999
and the related statements of operations and changes in partners'
equity and cash flows for the years ended December 31, 2000, 1999
and 1998. These consolidated financial statements are the
responsibility of the partnership's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audit. We did not audit the
financial statements of Tindeco Wharf Partnership, which
statements reflect total assets of $17,449,441, $18,324,708 and
$19,072,098 as of December 31, 2000, 1999 and 1998 respectively,
and total revenues of $4,656,945, $4,306,834 and $3,954,175
respectively for the years then ended. Those statements were
audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included
for Tindeco Wharf Partnership, is based solely on the report of
the other auditors.
We conducted our audit in accordance with auditing standards
generally accepted in the United States Of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other
auditors, the consolidated financial statements referred to above
presents fairly, in all material respects, the financial position
of Diversified Historic Investors II and subsidiaries as of
December 31, 2000 and 1999, and the results of operations and
cash flows for the years ended December 31, 2000, 1999 and 1998
in conformity with U.S. generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The Schedule of
Real Estate and Accumulated Depreciation on page 28 is presented
for the purposes of additional analysis and is not a required
part of the basic financial statements. Such information has
been subjected to the auditing procedures applied in the audit of
the consolidated financial statements and, in our opinion, which
insofar as it relates to Tindeco Wharf Partnership is based
solely on the report of other auditors, such information is
fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
As discussed in Note C of the financial statements, Diversified
Historic Investors II is liable for payment of a $1,800,000
guarantee resulting from the foreclosure on a property in 1993.
In the past the partnership has been able to continue the
forebearance when the period ends in July, 2000. If the lender
executes judgment it is expected to have significant adverse
impact on the partnership and could result in a forced sale of
the remaining properties.
Gross, Kreger & Passio
Philadelphia, Pennsylvania
July 3, 2001
Independent Auditor's Report
To the Partners of
Tindeco Wharf Partnership
We have audited the accompanying balance sheet of Tindeco Wharf
Partnership as of December 31, 2000, and the related statements
of profit and loss, partners' deficit and cash flows for the year
then ended. The financial statements are the responsibility of
the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards and Government Auditing Standards, issued by
the Comptroller General of the United States. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Tindeco Wharf Partnership as of December 31, 2000, and the
results of its operations, the changes in partners' deficit and
its cash flows for the year then ended in conformity with
generally accepted accounting principles.
Reznick, Fedder & Silverman
Baltimore, Maryland
March 20, 2001
DIVERSIFIED HISTORIC INVESTORS II
(a limited partnership)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Consolidated financial statements: Page
Consolidated Balance Sheets at December 31, 2000 and 1999 18
Consolidated Statements of Operations for the Years
Ended December 31, 2000, 1999, and 1998 19
Consolidated Statements of Changes in Partners'
Equity for the Years Ended December 31, 2000, 1999 and 1998 20
Consolidated Statements of Cash Flows for the Years
Ended December 31, 2000, 1999, and 1998 21
Notes to consolidated financial statements 22-28
Financial statement schedules:
Schedule XI - Real Estate and Accumulated Depreciation 30
Notes to Schedule XI 31
All other schedules are omitted because they are not applicable
or the required information is shown in the consolidated
financial statements or notes thereto.
DIVERSIFIED HISTORIC INVESTORS II
(a limited partnership)
CONSOLIDATED BALANCE SHEETS
---------------------------
December 31, 2000 and 1999
Assets
2000 1999
---- ----
Rental properties at cost:
Land $ 934,582 $ 934,582
Buildings and improvements 41,596,269 41,139,001
Furniture and fixtures 3,633,054 3,324,505
----------- -----------
46,163,905 45,398,088
Less - accumulated depreciation (24,737,850) (22,962,044)
----------- -----------
21,426,055 22,436,044
Cash and cash equivalents 23,681 38,110
Restricted cash 1,767,238 1,508,524
Accounts receivable 200,441 133,272
Other assets (net of accumulated
amortization of $445,407 and
$398,407) 1,657,299 1,764,850
----------- -----------
Total $25,074,714 $25,880,800
=========== ===========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $33,792,649 $33,306,221
Accounts payable:
Trade 3,681,307 3,241,235
Related parties 2,879,080 2,963,434
Interest payable 13,260,609 12,453,362
Tenant security deposits 277,730 249,938
Other liabilities 1,490,592 1,499,221
----------- -----------
Total liabilities 55,381,967 53,713,411
Partners' deficit (30,307,253) (27,832,611)
----------- -----------
Total $25,074,714 $25,880,800
=========== ===========
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS II
(a limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
For the Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
---- ---- ----
Revenues:
Rental income $5,462,332 $5,015,476 $4,623,527
Hotel income 1,305,660 1,384,057 1,582,824
Interest income 45,742 23,336 35,575
---------- ---------- ----------
Total revenues 6,813,734 6,422,869 6,241,926
---------- ---------- ----------
Costs and expenses:
Rental operations 2,102,471 2,055,706 1,850,883
Hotel operations 1,122,156 1,215,631 1,423,018
General and administrative 0 198,000 198,000
Partnership administrative fee 0 1,333,786 0
Interest 4,240,944 4,122,243 4,007,500
Depreciation and amortization 1,822,805 1,790,439 1,742,807
---------- ---------- ----------
Total costs and expenses 9,288,376 10,715,805 9,222,208
---------- ---------- ----------
Net loss ($2,474,642)($4,292,936) ($2,980,282)
========== ========== ==========
Net loss per limited partnership
unit ($ 118.97)($ 206.38) ($ 143.27)
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS II
(a limited partnership)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
------------------------------------------------------
For the Years Ended December 31, 2000, 1999 and 1998
Dover
Historic Limited
Advisors Partners
(1) (2) Total
-------- -------- -----
Percentage participation in
profit or loss 1% 99% 100%
== === ====
Balance at December 31, 1997 ($377,014) ($20,182,379) ($20,559,393)
Net loss (29,803) (2,950,479) (2,980,282)
-------- ----------- -----------
Balance at December 31, 1998 (406,817) (23,132,858) (23,539,675)
Net loss (42,929) (4,250,007) (4,292,936)
-------- ----------- -----------
Balance at December 31, 1999 (449,746) (27,382,865) (27,832,611)
Net loss (24,746) (2,449,896) (2,474,642)
-------- ----------- -----------
Balance at December 31, 2000 ($474,492) ($29,832,761) ($30,307,253)
======== =========== ===========
(1) General Partner.
(2) 20,593.3 limited partnership units outstanding at December
31, 2000, 1999, and 1998.
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS II
(a limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
For the Years Ended December 31, 2000, 1999, and 1998
2000 1999 1998
---- ---- -----
Cash flows from operating
activities:
Net loss ($2,474,642) ($4,292,936) ($2,980,282)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation and amortization 1,822,805 1,790,439 1,742,807
Changes in assets and
liabilities:
(Increase) decrease in restricted
cash (258,714) (413,151) 198,498
(Increase) decrease in accounts
receivable (67,168) (61,690) (22,671)
Decrease (increase) in other
assets 60,552 19,934 (94,299)
Increase in accounts payable -
trade 440,072 413,783 261,649
(Decrease) increase in accounts
payable - related parties (84,354) 1,441,700 25,331
Increase in interest payable 807,247 1,109,954 1,767,006
Increase in tenant security
deposits 27,792 804 6,447
(Decrease) increase in other
liabilities (8,629) 206,000 183,535
---------- ---------- ----------
Net cash provided by operating
activities: 264,961 214,837 1,088,021
Cash flows from investing ---------- ---------- ----------
activities:
Capital expenditures (765,817) (894,188) (1,035,729)
---------- ---------- ----------
Net cash used in investing
activities: (765,817) (894,188) (1,035,729)
---------- ---------- ----------
Cash flows from financing
activities:
Borrowings under debt obligations 1,694,430 1,387,108 182,998
Payments of principal under debt
obligations (1,208,003) (888,901) (87,059)
---------- ---------- ----------
Net cash provided by (used in)
financing activities: 486,427 498,207 95,939
---------- ---------- ----------
(Decrease) increase in cash and
cash equivalents (14,429) (181,144) 148,231
Cash and cash equivalents at
beginning of year 38,110 219,254 71,023
---------- ---------- ----------
Cash and cash equivalents at end of
year $ 23,681 $ 38,110 $ 219,254
========== ========== ==========
Supplemental Disclosure of Cash
Flow Information:
Cash paid during the year for
interest $3,433,697 $3,012,289 $2,240,494
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS II
(a limited partnership)
NOTE A - ORGANIZATION
Diversified Historic Investors II (the "Partnership") was formed
in December 1984 to acquire, rehabilitate, and manage real
properties which are certified historic structures as defined in
the Internal Revenue Code (the "Code"), or which are eligible for
designation as such, utilizing mortgage financing and the net
proceeds from the sale of limited partnership units.
Rehabilitations undertaken by the Partnership were done with a
view to obtaining certification of expenditures therefore as
"qualified rehabilitation expenditures" as defined in the Code.
The General Partner, Dover Historic Advisors, has the exclusive
responsibility for all aspects of the Partnership's operations
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the
preparation of the accompanying consolidated financial statements
follows:
1. Principles of Consolidation
The accompanying consolidated financial statements of the
Partnership include the accounts of two subsidiary partnerships
(the "Ventures"), in which the Partnership has controlling
interests, with appropriate elimination of inter-partnership
transactions and balances. These financial statements reflect
all adjustments (consisting only of normal recurring adjustments)
which, in the opinion of the Partnership's General Partner, are
necessary for a fair statement of the results for the years
presented.
2. Depreciation
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Buildings and improvements
are depreciated over 25 years and furniture and fixtures over
five years.
3. Finance Costs
Loan fees have been incurred with respect to certain loans. Such
fees are being amortized over the terms of the related loans (18
to 40 years) and being charged to amortization expense.
The Partnership prepaid all amounts due under a ground lease for
one of its properties. Such prepayment is being amortized over
the term of the lease (75 years) and being charged to
amortization expense.
Tindeco Wharf Partnership ("TWP") incurred $818,465 of settlement
fees in conjunction with a bond refinancing. These settlement
fees are included in other assets and are being amortized over
the term of the bond issue. Accumulated amortization was
$188,663 and $166,007 at December 31, 2000 and 1999,
respectively.
4. Cash and Cash Equivalents
The Partnership considers all highly liquid instruments purchased
with a maturity of less than three months to be cash equivalents.
5. Net Income Per Limited Partnership Unit
The net income per limited partnership unit is based on the
weighted average number of limited partnership units outstanding
during the period (20,593.3 in 2000, 1999 and 1998).
6. Income Taxes
Income taxes or credits resulting from earnings or losses are
payable by or accrue to the benefits of the partners;
accordingly, no provision has been made for income taxes in these
financial statements.
7. Restricted Cash
Restricted cash includes amounts held for tenant security
deposits, insurance and real estate tax reserves.
8. Revenue Recognition
Revenues are recognized when rental payments are due on a
straight-line basis. Rental payments received in advance are
deferred until earned.
9. Rental Properties
Rental properties are stated at cost. A provision for impairment
of value is recorded when a decline in value of a property is
determined to be other than temporary as a result of one or more
of the following: (1) a property is offered for sale at a price
below its current carrying value, (2) a property has significant
balloon payments due within the foreseeable future for which the
Partnership does not have sufficient resources, and anticipates
it will be unable to obtain replacement financing or debt
modification sufficient to allow it to continue to hold the
property over a reasonable period of time, (3) a property has
been, and is expected to continue, generating significant
operating deficits and the Partnership is unable or unwilling to
sustain such deficits and has been unable, or anticipates it will
be unable, to obtain debt modification, financing or refinancing
sufficient to allow it to continue to hold the property for a
reasonable period of time or, (4) a property's value has declined
based on management's expectations with respect to projected
future operational cash flows and prevailing economic conditions.
An impairment loss is indicated when the undiscounted sum of
estimated future cash flows from an asset, including estimated
sales proceeds, and assuming a reasonable period of ownership up
to 5 years, is less than the carrying amount of the asset. The
impairment loss is measured as the difference between the
estimated fair value and the carrying amount of the asset. In the
absence of the above circumstances, properties and improvements
are stated at cost. An analysis is done on an annual basis at
December of each year.
10. Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
NOTE C - DEBT OBLIGATIONS
Debt obligations were as follows:
December 31,
2000 1999
---- ----
Mortgage loan, interest only at 14%; $ 7,123,830 $ 6,531,626
principal due December 31, 2015,
collateralized by the related rental
property
Mortgage loan, interest at 12%, due 1,800,000 1,800,000
January 1, 1992, collateralized by the
related rental property (A)
Mortgage loans, interest at the Federal 1,083,896 1,081,669
Reserve Discount rate plus 2% with a
minimum of 7% and a maximum of 15% (7% at
December 31, 2000 and 1999), principal
and interest payable monthly based on a
20-year amortization schedule; principal
due October 1, 2005; collateralized by
the related rental property
Mortgage revenue bonds comprised of the 16,531,452 16,639,455
following: $1,440,000 of Serial Bonds,
interest rates ranging from 4.6% to 6.1%,
maturing semi-annually from June 20,
2000, to December 20, 2006; $1,650,000 of
Term Bonds, interest at 6.5%, maturing
December 20, 2012; $8,260,000 of Term
Bonds, interest at 6.6%, maturing
December 20, 2024; $5,605,000 of Term
Bonds, interest at 6.7%, maturing
December 20, 2028; collateralized by the
related rental property
Second mortgage loan, principal and 4,953,471 4,953,471
interest at 7.5%, payable in monthly
installments of $36,606 to July 2005
based upon available cash flow, at which
time the balance is due; collateralized
by the related rental property (B)
Note payable to a developer, interest
accrues at 12%, of which 6% interest is
payable annually; deferred interest is
payable out of cash flow after a
preference return to the Partnership with
interest accruing on the unpaid amount; `
principal and unpaid interest due at the
earlier of sale or refinancing of the
property or 2005; unsecured 2,300,000 2,300,000
----------- -----------
$33,792,649 $33,306,221
=========== ===========
(A) Interest payments were not made after August 1991. Lender
declared default and accelerated payment of the note in
February 1992. The partnership which owns the property
filed a petition of reorganization in May 1992. In November
1992, the automatic stay was lifted and the property which
collateralizes this loan was foreclosed by the lender in
February 1993. However, the partnership guaranteed
$1,800,000 of the original note balance, which is included
in debt obligations.
(B) Interest and principal after August 1, 1990 due only to the
extent of available cash flow. Any unpaid principal and
interest is deferred. Additional interest equal to 20% of
net cash flow from operations, as defined, in excess of
$1,075,000 is payable annually. The lender is also entitled
to receive 10% of the net proceeds from the sale of the
property as defined. No interest was paid during 2000, 1999
or 1998.
Approximate maturities of mortgage loan obligations, at December
31, 2000 for each of the succeeding five years are as follows:
Year Ending December 31,
2001 $ 1,919,017
2002 131,154
2003 144,528
2004 159,267
2005 8,512,876
Thereafter 22,925,807
-----------
$33,792,649
===========
NOTE E - ACQUISITIONS
The Partnership acquired one property and three general
partnership interests in Ventures during the period August 1985
to October 1985, as discussed below.
In August 1985, the Partnership was admitted, with a 99% general
partner interest, to a Pennsylvania general partnership, which
owns a building located in Savannah, Georgia, consisting of
22,559 commercial square feet and a 44 room hotel, for a cash
capital contribution of $3,600,409.
In October 1985, the Partnership was admitted, with an 85%
general partner interest, to a Pennsylvania general partnership,
which owned a 54-room hotel located in Washington, D.C., for a
cash capital contribution of $1,820,100. The Partnership's
interest was subsequently reduced to 69% when an affiliate of the
Partnership acquired a 19% interest. The lender foreclosed in
1993.
In October 1985, the Partnership purchased a three-story
building, consisting of 29 residential apartments and 9,500
square feet of commercial space, for a cash consideration of
$1,320,883.
In October 1985, the Partnership was admitted, with an 85%
general partner interest, to a Maryland general partnership,
which owns a building located in Baltimore, Maryland, consisting
of 240 residential units and 41,307 square feet of commercial
space, for a cash capital contribution of $7,271,300. The
Partnership subsequently purchased an additional 5% interest for
$262,500.
NOTE F- COMMITMENTS AND CONTINGENCIES
Pursuant to certain agreements, the developers of and lenders to
the properties are entitled to share in the following:
1. 15% of net cash flow from operations (one property), and 15%
to 50% of net cash flow from operations above certain
specified amounts (two properties);
2. 10% to 45% of the net proceeds, as defined, of the sale of
the respective properties (three properties). Generally,
the Partnership is entitled to a priority distribution of
the net proceeds of sale prior to any payments to
developers.
J. A. Jones Construction Company ("Jones") contracted with
Factor's Walk Partners ("FWP"), a subsidiary of the Partnership,
for the renovation of what was originally a warehouse, into the
River Street Inn/Factor's Walk. During construction, numerous
disputes arose between the parties. As a result of those
disputes, Jones abandoned the project prior to completion and
filed suit in the matter of J.A. Jones Construction Company v.
Factor's Walk Partners in the United States District Court for
the Northern District of Georgia. On January 1, 1994, the court
entered a judgment in favor of Jones and against FWP in the
amount of $1,069,017. The judgment accrued interest at 9.5% and
$62,562 of interest was accrued in both 1995 and 1994. FWP filed
an appeal which was held in abeyance while FWP and Jones
participated in a court sponsored settlement program. On
November 8, 1996, a settlement agreement was reached whereby a
note in the amount of $1,000,000 was issued. The note calls for
6% interest until September 1, 1997, with the rate increasing .5%
on each August 1 thereafter to a maximum of prime plus 2%
(therefore, 8% at December 31, 2000) and is due on October 1,
2011. Interest is due quarterly with the first payment due
September 1, 1997.
NOTE G - RELATED PARTY TRANSACTIONS
On June 30, 1992, DHP, Inc. assigned to D, LTD a note receivable,
from FWP to the Partnership, which had been assigned to DHP, Inc.
The note was in the stated amount of $55,951 and bore interest at
10%; the note was due on June 30, 1997. On January 13, 1994 D,
LTD obtained a judgment on this note in the amount of $73,184 in
Common Pleas Court for Philadelphia County, Pennsylvania. The
judgement accrues interest at 15%. On March 31, 2000 the note
was sold. Interest accrued during 2000 was $22,620. The balance
of the note at December 31, 2000 was $197,409. Interest accrued
during 2000 and 1999 was $22,619 and $24,665, respectively. The
balance of the note at December 31, 2000 was $197,409.
On June 30, 1992, DHP, Inc. assigned to D, LTD a note receivable
from the Partnership in the stated amount of $404,046. The note
bore interest at 10% and was due on June 30, 1997. On March 23,
1993, D, LTD obtained a judgment on this note in the amount of
$454,299 in Common Pleas Court for Philadelphia County,
Pennsylvania. The judgment accrues interest at 15%. Interest
accrued during 2000 and 1999 was $163,654 and $155,167,
respectively. Payments on the judgment are to be made from
available cash flow and before any distribution can be made to
the Partnership's limited partners. The balance of the note at
December 31, 2000 was $1,111,079. This note and judgment are
secured by a judgment lien on Washington Square and have been
acquired by the holder of the mortgage on Washington Square.
The seller of Washington Square agreed to lend funds to the
Partnership to cover cash flow deficits for a five-year period
expiring in 1990. The Partnership borrowed $97,008 through
December 1988. The loan bears interest at 12%, with principal
and interest payments to be made out of cash flow after the
payment of the cumulative preferred return to the limited
partnership unit holders. Interest accrued during both 2000 and
1999 was $11,641. The balance of the note at December 31, 2000
was $248,340.
Tindeco Wharf Partnership accrues to Dover Historic Advisors, an
affiliate of a partner, and Boston Street Properties, Inc., a
partner, an annual investor service fee of $10,000 each. These
fees are paid from available cash flow subsequent to the payment
of the operating deficit loan and current interest on the
development fee note. No fees were paid during 2000. Accrued
investor service fees are $80,000 at December 31, 2000.
NOTE H - INCOME TAX BASIS RECONCILIATION
Certain items enter into the determination of the results of
operations in different time periods for financial reporting
("book") purposes and for income tax ("tax") purposes.
Reconciliations of net loss and partners' equity follows:
For the Years Ended December 31, 2000
2000 1999 1998
---- ---- ----
Net loss - book ($ 2,474,642)($ 4,292,936)($ 2,980,282)
Depreciation 77,686 (79,205) 147,722
Interest 978,434 818,633 1,103,722
Guarantor fees 121,800 121,800 121,800
Investor service fee 20,000 20,000 20,000
Partnership administrative fee (1,333,786) 1,333,786 0
Other 19,252 0 0
Minority interest - tax only 199,521 124,189 179,674
----------- ----------- -----------
Net loss - tax ($ 2,391,735)($ 1,953,733)($ 1,407,364)
=========== =========== ===========
Partners' equity - book ($30,307,253)($27,832,611)($23,539,675)
Costs of issuance 2,471,196 2,471,196 2,471,196
Cumulative tax over (under) book
loss 8,436,375 8,914,091 6,947,522
Facade easement donation (tax only) 203,778 203,778 203,778
Prior period adjustment 48,071 48,071 48,071
Capital adjustments (tax only) (324,580) (324,580) (324,580)
----------- ----------- -----------
Partners' equity - tax ($19,472,413)($16,520,055)($14,193,688)
=========== =========== ===========
NOTE I - TERMINATION OF MANAGEMENT AGREEMENT
In 1999 TWP terminated its management agreement with Signature
Management Services. The termination agreement requires a buyout
totaling $1,350,000 of which $1,333,786 is included under the
caption "Partnership Administration Fee" in the Consolidated
Statements of Operations and $16,214 of which was utilized to
repay outstanding advances.
NOTE J - SUBSEQUENT EVENT
Washington Square was foreclosed on March 22, 2001 by the holder
of the mortgage and the judgment.
SUPPLEMENTAL INFORMATION
DIVERSIFIED HISTORIC INVESTORS II
(a limited partnership)
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2000
Cost
Capitalized
Initial Cost Subsequent
to Partnership to
(b) Acquisition
Buildings
and
Encum- Improve- Improve-
Description brances Land ments ments
- ----------- ------- ---- --------- --------
(a) (f)
44 room hotel
with 21,500
square feet
of commercial
space in
Savannah,
GA $ 7,123,829 $200,000 $ 9,178,160 $ 1,603,009
29 apartment
units
and 9,500
square feet
of
commercial
space in
West
Chester,
PA 2,883,897 87,500 2,833,383 131,798
262 apartment
units
and 39,000
square feet
of
commercial
space in
Baltimore,
MD 23,784,923 647,082 2,000,000 29,482,973
----------- -------- ---------- -----------
$33,792,649 $934,582 $14,011,543 $31,217,780
=========== ======== =========== ===========
Gross Amount at which Carried at
December 31, 2000
Buildings
and Accumu- Date Date
Improve- lated of Acquir-
Description Land ments Total Depr. Constr. ed
- ----------- ---- --------- ----- ------ ------- ------
(a) (c)(d) (d)(e) (a)
44 room hotel
with 21,500
square feet
of commercial
space in 1985-
Savannah,GA $200,000 $11,201,920 $11,401,920 $ 5,828,628 1986 8/9/85
29 apartment
units and
9,500 square
feet of
commercial
space in West
Chester, PA 87,500 2,965,181 3,052,681 1,779,725 1985 10/1/85
262 apartment
units and
39,000 square
feet of
commercial
space in
Baltimore,MD 1985-
647,082 31,062,222 31,709,304 17,129,497 1986 10/15/85
-------- ----------- ----------- -----------
$934,582 $45,229,323 $46,163,905 $24,737,850
======== =========== =========== ===========
DIVERSIFIED HISTORIC INVESTORS
(a limited partnership)
NOTES TO SCHEDULE XI
December 31, 2000
(A) All properties are certified historic structures as defined
in the Internal Revenue Code, or are eligible for
designation as such. The "date of construction" refers to
the period in which such properties were rehabilitated.
(B) Includes development/rehabilitation costs incurred pursuant
to development agreements entered into when the properties
were acquired.
(C) The aggregate cost of real estate owned at December 31,
2000, for Federal income tax purposes is $43,823,769. The
depreciable basis of buildings and improvements is reduced
for federal income tax purposes by the investment tax credit
and the historic rehabilitation credit obtained.
(D) Reconciliation of real estate:
2000 1999 1998
---- ---- ----
Balance at beginning of year $45,398,088 $44,503,900 $43,468,171
Additions during the year:
Improvements 765,817 894,188 1,035,729
----------- ----------- -----------
Balance at end of year $46,163,905 $45,398,088 $44,503,900
=========== =========== ===========
Reconciliation of accumulated depreciation:
2000 1999 1998
---- ---- ----
Balance at beginning of year $22,962,044 $21,218,232 $19,522,725
Depreciation expense for the year 1,775,806 1,743,812 1,695,507
----------- ----------- -----------
Balance at end of year $24,737,850 $22,962,044 $21,218,232
=========== =========== ===========
(E) See Note B to the financial statements for depreciation
method and lives.
(F) See Note F to the financial statements for information
regarding certain contingencies.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of Registrant
a. Identification of Directors - Registrant has no
directors.
b. Identification of Executive Officers
The General Partner of the Registrant is Dover
Historic Advisors (DoHA), a Pennsylvania general partnership.
The partners of DoHA are as follows:
Term of
Name Age Position Office Period Served
- ---- --- --------- ------ -------------
Partner in
SWDHA, Inc. -- DoHA No fixed term Since May 1997
Partner in
EPK, Inc. -- DoHA No fixed term Since May 1997
c. Identification of Certain Significant Employees. Regis-
trant has no employees. Its administrative and operational functions
are carried out by a property management and partnership
administration firm engaged by the Registrant.
d. Family Relationships. None
e. Business Experience. DoHA is a general partnership
formed in August 1985. The General Partner is responsible for
the management and control of the Registrant's affairs and will
have general responsibility and authority in conducting its
operations.
On May 13, 1997, SWDHA, Inc. and EPK, Inc. were
appointed partners of DoHA. Spencer Wertheimer, the President
and Sole Director of SWDHA, Inc., is an attorney with extensive
experience in real estate activities and ventures.
EPK, Inc. is a Delaware corporation formed for the
purpose of managing properties or interests therein. EPK, Inc.
is a wholly-owned subsidiary of D, LTD, an entity formed in 1985
to act as the holding company for various corporations engaged in
the development and management of historically certified
properties and conventional real estate as well as a provider of
financial (non-banking) services. EPK, Inc. is a partner of
DoHA.
The officers and directors of EPK, Inc. are described
below.
Spencer Wertheimer was appointed on May 13, 1997 as
President, Treasurer and Sole Director of EPK, Inc. Mr.
Wertheimer is an attorney with extensive experience in real
estate activities and ventures.
Donna M. Zanghi (age 43) was appointed on May 13, 1997
as Vice President and Secretary of EPK, Inc. Ms. Zanghi
previously served as Secretary and Treasurer of DHP, Inc. since
June 14, 1993 and as a Director and Secretary/Treasurer of D,
LTD. She was associated with DHP, Inc. and its affiliates since
1984 except for the period from December 1986 to June 1989 and
the period from November 1, 1992 to June 14, 1993.
Michele F. Rudoi (age 35) was appointed on May 13, 1997
as Assistant Secretary of EPK, Inc. Ms. Rudoi previously served
as Assistant Secretary and Director of both D, LTD and DHP, Inc.
since January 27, 1993.
Item 11. Executive Compensation
a. Cash Compensation - During 2000, Registrant has paid
no cash compensation to DoHA, any partner therein or any person
named in paragraph c. of Item 10. Certain fees have been paid to
DHP, Inc. by Registrant.
b. Compensation Pursuant to Plans - Registrant has no
plan pursuant to which compensation was paid or distributed
during 2000, or is proposed to be paid or distributed in the
future, to DoHA, any partner therein, or any person named in
paragraph c. of Item 10 of this report.
c. Other Compensation - No compensation not referred to
in paragraph a. or paragraph b. of this Item was paid or
distributed during 2000 to DoHA, any partner therein, or any
person named in paragraph c. of Item 10.
d. Compensation of Directors - Registrant has no
directors.
e. Termination of Employment and Change of Control
Arrangement - Registrant has no compensatory plan or arrangement,
with respect to any individual, which results or will result from
the resignation or retirement of any individual, or any
termination of such individual's employment with Registrant or
from a change in control of Registrant or a change in such
individual's responsibilities following such a change in control.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
a. Security Ownership of Certain Beneficial Owners - No
person is known to Registrant to be the beneficial owner of more
than five percent of the issued and outstanding Units.
b. Security Ownership of Management - None.
c. Changes in Control - Registrant does not know of any
arrangement, the operation of which may at a subsequent date
result in a change in control of Registrant.
Item 13. Certain Relationships and Related Transactions
Pursuant to Registrant's Amended and Restated Agreement
of Limited Partnership, DoHA is entitled to 10% of Registrant's
distributable cash from operations in each year. There was no
such share allocable to DoHA for fiscal years 1997 through 2000.
a. Certain Business Relationships - Registrant has no
directors.
b. Indebtedness of Management - No executive officer or
significant employee of Registrant, Registrant's general partner
(or any employee thereof), or any affiliate of any such person,
is or has at any time been indebted to Registrant.
PART IV
Item 14. (A) Exhibits, Financial Statement Schedules and Reports
on Form 8-K.
1. Financial Statements:
a. Consolidated Balance Sheets at
December 31, 2000 and 1999.
b. Consolidated Statements of
Operations for the Years Ended December 31,
2000, 1999 and 1998.
c. Consolidated Statements of
Changes in Partners' Equity for the Years Ended
December 31, 2000, 1999 and 1998.
d. Consolidated Statements of Cash
Flows for the Years Ended December 31, 2000,
1999 and 1998.
e. Notes to consolidated financial
statements.
2. Financial statement schedules:
a. Schedule XI- Real Estate and
Accumulated Depreciation.
b. Notes to Schedule XI.
3. Exhibits:
(a) Exhibit Number Document
-------------- --------
3 Registrant's Amended and
Restated Certificate of
Limited Partnership and
Agreement of Limited
Partnership, previously
filed as part of Amendment
No. 2 of Registrant's
Registration Statement on
Form S-11, are
incorporated herein by
reference.
21 Subsidiaries of the
Registrant are listed in
Item 2. Properties of this
Form 10-K.
(b) Reports on Form 8-K:
No reports were filed on Form 8-K
during the quarter ended December 31, 2000.
(c) Exhibits:
See Item 14(A)(3)above.
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of
the Securities Exchange Act of 1934, Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DIVERSIFIED HISTORIC INVESTORS II
Date: December 17, 2002 By: Dover Historic Advisors, General Partner
-----------------
By: EPK, Inc., Partner
By: /s/ Spencer Wertheimer
----------------------
SPENCER WERTHEIMER
President and Treasurer
By: /s/ Michele F. Rudoi
----------------------
MICHELE F. RUDOI,
Assistant Secretary
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of Registrant and in the capacities and on the
dates indicated.
Signature Capacity Date
--------- -------- ----
DOVER HISTORIC ADVISORS General Partner
By: EPK, Inc., Partner
By: /s/ Spencer Wertheimer December 17, 2002
---------------------- -----------------
SPENCER WERTHEIMER
President and Treasurer
By: /s/ Michele F. Rudoi December 17, 2002
----------------------- -----------------
MICHELE F. RUDOI,
Assistant Secretary